During due diligence, the buyer is questioning our high gross margin, claiming it relies on our senior partners doing unpaid executive work. How do we use our GWC evaluations and current Accountability Chart wages to prove our leadership team is fully compensated at market rates?

Question

Tyler Smith · Accepted Answer

Buyers look for undercompensated owners to argue that your historical margins are artificially inflated. They will claim that if they replace you with market rate hires, your profitability will plummet. To defeat this, use your EOS® Accountability Chart to prove that every seat is filled by an individual who is paid a true market wage. Present your documented GWC™ evaluations for every leader to show they possess the cognitive ability, physical capacity, and internal drive to run their respective seats. This proves that you do not have hidden, underpaid administrators doing key tasks behind the scenes. Provide market compensation data from independent recruiting firms to show that your leadership salaries align with industry standards for your company size and sector. If you or your partners are currently taking below market salaries but high distributions, recast your historical financials during the QofE process. Adjust your EBITDA downward to reflect normalized market salaries for your roles, and present this clean, adjusted number to the buyer upfront. This transparency builds credibility and prevents the buyer diligence team from applying an arbitrary discount to your margins. Proving your leadership team is fully compensated and highly capable shows the buyer that your margins are sustainable post closing.